It turns out that the combination of a clear circuit split, the U.S.’s encouragement, and yet another opportunity to overturn the Ninth Circuit, is irresistible. The Associated Press reports that the Supreme Court has granted the cert petition filed by the defendants in the Dura Pharmaceuticals securities litigation, which should lead to a resolution of the circuit split over what is necessary to adequately plead loss causation in a securities fraud case.
A majority of circuit courts hold that a plaintiff must demonstrate a causal connection between the alleged misrepresentations and a subsequent decline in the stock price to adequately plead loss causation, while a minority of circuit courts hold that a plaintiff merely needs to demonstrate that the alleged misrepresentations artificially inflated the stock price. In Broudo v. Dura Pharmaceuticals, Inc., 339 F.3d 933 (9th Cir. 2003), the Ninth Circuit came down squarely in favor of the minority position.
The court found that loss causation “merely requires pleading that the price at the time of purchase was overstated and sufficient identification of the cause.” Based on this holding, the Ninth Circuit reversed the lower court’s dismissal and remanded the case for further proceedings. The defendants petitioned for a writ of certiorari to the Supreme Court. The U.S. (the SEC and the Solicitor General) later filed an amicus brief in support of the petition, arguing that the case was wrongly decided and the Supreme Court should adopt the majority position. Will it? Stay tuned.